Thanksgiving Family Money Letter – 2015


Happy Thanksgiving!

The biggest payoff comes from being good at things that are absolutely under our control. That’s the lesson I’ve learned studying economics, finance, and investment theory. That includes saving for goals, being a judicious consumer, and maintaining your relationships, your health, and your emotional wellness. One of my new gurus, Bert Whitehead, wrote a book called Why Smart People Do Stupid Things with Money: Overcoming Financial Dysfunction. He says not to put too much weight on what interest rates are doing, what specific investments you choose, and what’s going on in the global political or economic climate. Far more important are keeping your taxes low, diversification, being a wise shopper, making choices about how much you’ll work, the stability of your relationships, the home you purchase or rent, and how much you save for retirement.
The behavioral economist Richard Thaler writes that people can be nudged towards better choices with little tricks. Little tricks are the tools of my trade. I have a whole tool chest of them. Tips to help you save more, tools to help you get a better mortgage, ideas to help you invest better, and, of course, ways to help you save on taxes.

This is my annual “Thanksgiving Family Money Letter,” filled with year-end tax planning tips, heads up about what’s new about taxes, ideas for financial wellness, news about more changes at Tea & Taxes Company, and announcing its new sister, ProsperiTea Planning. Feel free to skip around. Happy Holidays!
Tea & Taxes Company News

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Over the past three years I’ve been experimenting with ways to expand my business. I wanted to train successors, and also to get more help with tax preparation so I could devote more time to my financial planning practice. It didn’t work out that way. I’ve been side-tracked by a near constant hunt to find, train, and supervise new staff, as well as facilities projects associated with providing space for them. I am tweaking once again to refocus back on my actual clients and the work I love doing.
So there are some big changes:

  • We just finished renovating the office space in Wendy’s home at 3 Grinnell Street and plan to bring the business back to 3 Grinnell Street around January 1st. The 473 Main Street building is for sale. It’s too big for us now, but is perfectly designed for another professional services firm. It has 11 off-street parking spaces near the courthouse, and is on the new high-speed fiber network.
  • Jessica Washer left public accounting to take a job at UMass. We were never able to find a suitable second staff accountant and with the loss of Jessica we have none. We are no longer accepting new bookkeeping or payroll clients.
  • Krystal is returning for a second year as a paraprofessional. She starts the tax intake that Wendy will finish, she does light bookkeeping under Wendy’s supervision, and supports the financial planning practice, as well. She works nearly full-time and year-round.
  • We’re pleased to announce that Justin Twaddell will be joining us this year as a tax season assistant. He does seasonal work building pools and we’re excited about the synergy we find with him. He will be assisting Wendy with tax preparation, and helping cover the phones and door during tax season.
  • Wendy has advanced in her career as a certified financial planner, and is registering”ProsperiTea Planning” as an investment advisor firm  as of January 1, 2016. She found just the right fit with the Alliance of Comprehensive Planners, a group of tax-focused fiduciary financial planners who work under a retainer model. ProsperiTea Planning clients will be offered a range of services that include at least four meetings a year covering tax preparation, comprehensive goals-based financial planning, investment advising, and tax planning. In addition we have as many meetings as it takes to implement the strategies we determine for you. The genius of the retainer system is that it’s the right model to help with the implementation stage. We simply do what needs doing until it’s done. It works better for knowledge workers who spend thousands of dollars on continuing education each year to be able to answer questions quickly. If you are interested in learning more about how the comprehensive retainer works, you can read more about it here.
  • Wendy is still offering tax preparation under the name Tea & Taxes Company. Because they are covered under different regulatory agencies, it makes sense for Wendy Marsden, CPA to operate independently from Wendy Marsden, CFP®. 🙂
  • Every retainer client that comes in displaces about 10 tax clients. As such, and because of the loss of Jessica, Wendy has to significantly reduce the number of people in her tax practice. We sent letters in the mail on Wednesday, 11/25 to the people we think need to be serviced elsewhere (mostly because Wendy relied on Jessica’s help with them). Those people are not getting this email, so if you just got this in your in-box then we are hoping you’ll continue to use our services. We’ll be sending organizers in January.  Open up the organizer packet andreturn the engagement letter in the stamped addressed envelope if you want to be sure of a spot.

As always, we really appreciate a heads up if you are NOT returning so we can get a handle on our client roster count. (That’s where my April Facebook Countdown numbers come from!) Just a quick email will do.

We are leading edge in terms of adopting technology, and occasionally that means we’re on the bleeding edge. Here are some tweaks that might affect you:

  • SecureDrawer is our new client portal software, which allows us to exchange documents securely online. Unfortunately, right after we committed to it, the newest upgrade to Chrome stopped allowing Silverlight to run. You can kludge it this way, or simply use another browser (we use Internet Explorer for this one thing, and Firefox works, too.) In 2016 we changed to Sharefile.
  • We updated our CRM (client contact database) and we’ll be asking everyone to confirm we have the right contact info. Specifically, we separated out spouses into separate records so errors might have been introduced in the process.
  • We are running without a dedicated receptionist these days. Everyone who works here is likely to be face-to-face with a client. We’ll have extra coverage when the organizers first go out to help with scheduling, and we’ve also worked to implement online scheduling on the Tea & Taxes website. I send out an email message to tax and retainer clients when we have the schedule set for next tax season, probably sometime in December.

Best wishes for a lovely holiday season,Wendy Marsden, CPA CFP®

Heath Care Reform Update

Last year the MA Health Connector just couldn’t get off the ground. This year they’re functioning a bit better. According the Boston Globe, around 46,000 people buy insurance on the Connector without government subsidies, and another 132,000 people buy it with some form of subsidy. There are two kinds of subsidies available:

  • People making less than 300% of the poverty level  get subsidized premiums AND subsidized copays.
  • People making less than 400% of the poverty level get an advance on their anticipated tax credit to subsidize their premiums. There is a truing up done on your tax return when you go to do the 2015 tax return, where they look at what subsidies you got (more on this below) and then calculate what subsidy you were entitled to. If you got too much subsidy then you have to pay some or all of the excess back. If you got too little (because you made less than you originally estimated) then you get the excess back as a tax credit that will increase your refund or reduce the amount you owe.
  • Watch your mail in January for a new tax form we’ll need at tax-time: Form 1095 will show your insurance coverage and any subsidy amounts you may have received. It’s the Federal equivalent of the Form 1099-HC. You’ll need both at tax time this year.
  • The penalty for not having health insurance more than doubled this year, up to $975 a person, and it’s doubling again next year.
It’s time to go get health insurance if you didn’t. I look at it this way: ambulances are standing by. The operating rooms are heated and cooled and cleaned and staffed. Even if you’re not using it that day, you are benefiting from the infrastructure in place if you need it. Yeah, it costs as much as food or housing, but it’s for the same reason: the basic costs of having a human body.It is complex signing up on the connector. You will want your 2014 tax return in front of you. One of the questions is about your current employer: they confirm your employment by cross-checking with the unemployment reports your employer files quarterly. You will need to get their name exactly as it appears on the unemployment records. Look on the W-2 the prior year. If it is a new employer, you may need to ask exactly what name they use for unemployment filings.For self-employed people they want you to report your net income. I reduce that by the deductible portion of SE tax and SE health insurance to get to an annual number, then divide by 12. Hey, it’s hard!  If you want to engage me to help you through this please call, but I know that there are health insurance counselors working at Baystate Franklin Medical Center and Community Health Center of Franklin County who do this for free.  (Note that they are even busier than me, so call (413) 773-2849 (Baystate) or (413) 325-8500 (CHC) to make an appointment to speak to one of the MassHealth Financial Counselors.)There’s a fantastic deduction available to people who are willing to handle high out-of-pocket costs for their medical care, essentially treating health insurance like car insurance that only pays for catastrophes rather than basic maintenance. If you need new tires or an oil change or even a new exhaust system you just pay out of pocket for your car care, right?  If you can use that same mindset for health care spending then you might like an “HSA-eligible High Deductible Bronze Plan” (like this one from Health New England) because it means you are eligible to take deductions for the very best retirement plan out there: an account similar to an IRA called a “Health Savings Account”. You get a deduction for putting the money in, you can withdraw it without taxes or penalty if you have a medical emergency, and you can immediately withdraw it later without taxes or penalty in old age or for health issues. Deduction for going in, untaxed coming out, access for medical emergencies: it’s the best tax break I can find for anyone! I like HSA Bank because you can invest it for retirement once you accumulate over $5,000.

2015 Tax Update

Massachusetts Updates MA will allow gambling losses against income from MA casinos or race tracks. Nice of them, eh?There is a new website to access the Department of Revenue opening next week.  It’s useful for amending returns online and paying quarterlies. I encourage people to use it. It’s called MA Tax Connect and its due to arrive December 1st.There is a new tax amnesty coming up next spring, where delinquent filers can come forward on their own and get penalties waived. The catch is that you aren’t eligible if they have already sent you an assessment.
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Federal Updates
Fighting fraud is the name of the game these days. The IRS is talking about verifying quite a few things. One is business mileage. The IRS is now asking for “third party verification” of odometer readings to substantiate your own mileage logs. It’s allowable to create a mileage log after-the-fact, but the IRS needs to tie it back to reality someplace. Keeping oil change receipts is one method, but another is to email me back your odometer reading when I send you my my “Happy New Year, go check your odometer” email message.Keep your PIN if IRS sends you one. This is related to the fraudulent returns being filed using stolen identities. Apparently they send you a new PIN each year and we will need it when we file your tax return. If you want one for yourself you can get it here. [IRS Identity Theft PIN site]. If you are expecting a large refund you might want to get one, just because the tax refunds get held up for many months for people who have identity theft issues.Charitable giving has always been heavily audited, but at this point the IRS will disallow deductions if you don’t have a receipt saying, “no goods or services were provided in exchange for this donation.” You especially need to ask your church for a receipt that says that – at this point the IRS assumes goods and services WERE exchanged if you don’t get that wording.FBARs are serious business to anyone who had over $10,000 as a high balance in a foreign financial account during the year. This applies to more people than you probably realize. Did you inherit a bank account from your grandmother in England?  Sell a family camp in Canada?  You probably need to file a FBAR.If you have a self-directed IRA that owns things like land or collectibles, there’s a new rule saying you have to file a Form 5498 and check the box saying you have “hard to value assets.” This is to make sure that Required Minimum Distributions are distributed.RMDs are a serious issue for anyone who iturned 70.5 in 2015.  You have until March 31st, 2016 to take your RMD so be sure to mention it if you need help with this!Penalties for not filing 1099-series forms have increased, too. If you need to send someone a 1099-MISC (because they’re performing services for you that you’ll be deducting, the penalty has gone up to $500 for willfully not filing it. We have a stack of Form 1099-MISC and the coversheet Form 1096 for do-it-yourselfers, and we do it ourselves for our clients who have year-round bookkeeping engagements with us. If you wish to engage us to do your 1099s please let us know by January 15th!  In the meantime, please please PLEASE get your contractors to fill out W-9s. We use those forms when filling out the 1099s in January but we need them ahead of time!Is anyone in college?  If you are trying to get any of the education credits from now on we must attach Form 1098-T from the educational institution to your return. Tell your college-aged kids to get that form for us.We don’t need to see the Form 1098-E for student loan interest, but someone has to go online and find it: that deduction gets missed a lot because people forget to send it in.

Tax Planning Tips

Tax planning for solar credits
Right now the residential renewable energy credits are set to expire at the end of 2016. It’s unclear whether they will be renewed – we can never tell what Congress will manage to accomplish. If they expire, it’s also unclear whether carryforwards will expire. So a good idea might be to check to see if you have enough tax liability to soak up the credits in 2016. If not, 2016 might be a good time to do a Roth conversion as discussed below.
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Tax planning for capital gains
One of the things that we find challenging about tax planning for people with investments is to know what sort of year-end distributions we can expect from our mutual funds. Vanguard offers an estimate hereFidelity has theirs here, and you might find some others here. [Mutual Fund Observer]
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Tax Planning for Roth Conversions
For people who don’t normally file tax returns: if you have so little income that you’re going to have no taxes, this is a good year to stop deferring the taxes on “tax-deferred income” like IRAs and 401(k)s and either move them to a taxable account or convert them to a Roth IRA. I’d rather see someone take $10,000/year out of their Traditional IRA than take nothing out for 10 years and then need $100,000 out all at once. Lump sums of retirement income cause all sorts of havoc and many a taxpayer has discovered that they deferred the taxes so long that they ended up paying them at the highest tax bracket of their lives.

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Tax planning with charitable contributions
If you are inclined to give to charity, either now, in the future or as a bequest, there’s a lot of fantastic tax saving opportunities involving giving appreciated stocks, donor-advised funds, charitable remainder trusts, and the like. We can also do things (sometimes) with RMDs from retirement plans straight to charity. I want you to know this concept exists in case it applies to you. Come talk to me about it if you want to know more!

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Congressional drama about extenders:
Once again, there are a bunch of provisions that expired at the end of 2014 that we expect to be renewed/extended. Typically Congress gets around to patching them just in time (or perhaps a week past) the deadline for printing tax forms. So far they haven’t done it yet, so here is a list of changes that might affect your 2015 tax return.

Fraud Alert

The IRS never calls out of the blue. They have a 36% success rate on answering calls TO them, they don’t have the manpower to be making calls out!  It’s a scam 100% of the time. (Unless you’ve already been in a conversation with them about an ongoing audit, by which time they are calling ME, not you.)The newest thing is that people steal your identity and use it to get paid all year, then leave you to clean up their taxes on what looks like a W-2 in your name. It can screw up your social security if you are between the ages of 62 and 66, and it can cause you to get alarming letters about taxes you owe on W-2s you didn’t really have, but have your name on them. We clean these up when they happen. I haven’t seen any recently but I’ve heard this is on the rise.The big one we see a lot is people filing fake refunds requests using your name and social security number. When you go to file your real return they say you’ve already filed. This has been a massive problem and they are cleaning it up bit by bit. The thing you need to know here is that it can delay your refund for MONTHS and MONTHS, sometimes almost a year.Financial fraud on elders is growing as fast as the elderly population. It’s a hidden issue because people who fall prey to it are so embarrassed that they don’t talk about it. A lovely article in Consumer Reports brings this into the light.Be particularly aware that you are likely to be the target of scammers yourself  if you live long enough. Sharks are circling elders looking for a way to steal their money. Check out AARP Fraud Watch for the things people have reported seeing! It’s a good idea to run it past me anytime you’re moving more than, say, $10,000. Just get a second opinion is all I’m suggesting.

Financial Planning Tips

Changes to college financial aid
Do you have a junior in high school?  A new change to the FAFSA makes the year they’re looking at be the “prior prior” year, in other words, 2015!  If you are strategizing about financial aid for students going to college in two years then you want to pay attention to what 2015 looks like.Energy Savings 
There’s a really great payback on energy efficiency upgrades. Mass-Save does free energy audits for people. I highly recommend checking these out. [Mass-Save]. It’s a bit unclear what is going on with the home energy efficiency tax credits, but if they get extended we may be able to use any home improvements on your taxes.

Legal Documents

  • Make sure you have a will, health care proxy, and perhaps a durable power of attorney. Check out the new “MOLST” document people are using. [Medical Orders for Life Sustaining Treatment]
  • Give out signed HIPAA releases to anyone who you would want to be able to check on you if you were in the hospital, do one for your local hospital and doctor, too. (Sometimes they ask you on admission to do one that you fill out for that specific situation; you might want to replace it after some forethought.) A good tip is to scan it and send it by email to people who ought to have it, they can call the PDF up on their email in an emergency. Here’s a link to one: [Mass Legal Services Website]
  • Also consider the NON-legal document you may want most: an “ethical will”. Read more about those here: [Forum for Family and Consumer Issues]

Retirement and Estate Planning
Confirm your beneficiaries are still who you mean them to be on retirement accounts and life insurance.  These don’t pass under a will, they pass according to who you named as beneficiary.

Do some estate planning:

  • If you think you are going to die with more than a million dollars in MA
  • If you have a disabled heir
  • If you own real property in more than one state
  • If you have a complex life that might need someone to be able to step in and manage it for you or you want to settle your estate privately without public notice: you probably need a revocable trust.

Firearms: Plan what to do with firearms when the permit-holder dies. MA only allows six months after the permit-holder dies to get gun ownership transferred.  Help your heirs out by planning this in advance. [Inheriting Guns Guidelines]

Bullion: In the same vein, if you hold bullion make sure your heirs know where it is.

Retirement plans with former employers: If you have retirement plans with old employers meet with a fee-only fiduciary planner (not a broker/representative) to roll them into your own low-fee Traditional IRA.

Changes to social security! If you are thinking of starting Social Security, please take a moment to discuss this with a financial planner (call me!) because we may be able to save you from some very expensive mistakes. There was a HUGE change this November that affects everyone who will be 66 by April 29, 2016 and is married and not dependent on social security income to avoid starving to death. If this describes you, call me!

Emergency Cash, Rainy Day Money, and Catastrophe Money
Have some emergency money in the house, enough to pay for necessary groceries and medication if the banking system went down and you had to pay cash. You can also think of it as “refugee money.” If you needed to evacuate NOW, how much cash would you want for travel costs to far away family? Gas, hotels, meals on the road? Have that much in small bills and rolled coins.  (We like rolls of dollar coins for this.)

Rainy Day Money is an escrow account for all the stuff that doesn’t happen regularly, but DOES happen. Car repairs, summer camp, winter heating bills, household appliances. Over a year what would you expect to spend? Put this in your savings account. You will be using something from it each month, but you won’t find yourself being stunned that Christmas came again. A few minutes of thinking about intermittent bills can be a big help to your budget.

Catastrophe Money is six month’s of living expenses. If no  catastrophe hits, this becomes retirement money. A Roth IRA is a fantastic place for this, but an HSA may be a good choice if you are eligible for one.

Saving for Your Next Car
Do you have a paid-off car? Start a savings account for its replacement, and fund it each month with the amount you think you would budget for a car payment. Your car just used up one month of its life. If you don’t put money aside for its replacement then you are saying “the future is so bright that it can afford to pay for past consumption – plus interest”. Maybe true if you are twenty-five. Probably not true if you are fifty-five.

Credit Report
it’s a good idea to get a free credit report at least once a year. You can get one each from each of the credit reporting agencies, but since they are largely duplicates of each other I’d say to just get it from one credit agency to start. I’m not talking about the credit score; I’m talking about the report itself. It shows your actual activity, and your goal is to scan it to see if something simply makes no sense. If you forgot you opened up a Home Depot credit card to save $20 that time, that’s fine. But if you discover that someone else is opening up credit cards in your name then it’s time to take action. Start here for the free report: []

Health Insurance
Medicare open enrollment is going on now. Make sure  elders in your life have prescription drug coverage that suits them. Think of it this way: you get A for free, you buy part B for about $105/month, and you either buy Part D (maybe along with a medigap plan) or you get part C (a medicare advantage plan) that replaces part A, B, D and the medigap plan. You can get excellent help in choosing a medicare plan from the good people in the SHINE program at Franklin County Home Care.  For more on the Affordable Care Act, see the health care reform section above.

Other Insurance Needs
Ask for review of your home and car insurancewith your property insurance agent. Homeowner’s insurance, in particular, might need adjustment. Your current agent can do this. Should you havedisability insurance if you are unable to work, term life insurance to ease catastrophes, and long-term care insurance? Your car insurance agent may not be the right person to help with this, you need one qualified in life and annuities.  (Let me know if you have one you love!)

Rebalance your portfolio. Sell your winners, buy your losers, reset to your preferred asset allocation strategy.
Free up space by cleaning out things to bring to charity! Keep track of what you donated (I use a clipboard and a tally), get a receipt when you drop it off, then you can load it into a spreadsheet like this one to figure out the value for tax time.

Don’t assume organizations that solicit you are the best at doing their work. Instead, clarify your values and find charities that are doing a great job of what you want done. You may have never heard of them because they have a lousy marketing budget. Two good resources for finding information about charitable organizations areCharity Navigator and GuideStar. We told our children to find charities that reflected their values and we would match their contributions (and grab the tax deductions!) One way to make the world a better place because you are in it is by funding your values.

Happy Thanksgiving!